Starbucks has become the first multinational to cave in to public anger and
political pressure over what MPs called “outrageous” and “immoral” tax
avoidance.

After months of controversy over its tax affairs in Britain, the US coffee giant admitted it “needed to do more” by agreeing to review accounting practices that reduce its taxable profits. It is now looking to declare larger profits in Britain and thus pay more tax.

Starbucks – valued at £25bn – is in talks with HM Revenue & Customs (HMRC) and the Treasury over it tax position. Discussions are understood to be focusing on reducing a “royalty fee” of 4.7pc its UK company pays to a Dutch subsidiary for the rights to use the Starbucks name and coffee recipe.

This policy legally channels money out of the UK, allowing it to reduce its tax bill here. The company also uses a practice called “transfer pricing” to buy coffee beans from a Swiss subsidiary, which also helps to minimise its UK tax bill.

The American company has paid just £8.6m in UK corporation tax since it launched in Britain 14 years ago, despite sales here of £3bn – a tax rate of less than 1pc. Last year, it paid no corporation tax in the UK, despite revenues of £398m. By contrast, its rival chain, Costa, recorded £377m sales and paid a tax bill of £15m – or 31pc of profits.

A spokesman for Starbucks said: “Starbucks is committed to the UK for the long term. [We have] complied with all the tax laws in this country but have regretfully not been as profitable as we would have liked. We have listened to feedback from customers and employees, and understand that to maintain and further build public trust we need to do more. As part of this, we are looking at our tax approach in the UK.”

Margaret Hodge, head of the PAC, said in the report: "Global companies with huge operations in the UK generating significant amounts of income are getting away with paying little or no corporation tax here. This is outrageous and an insult to British businesses and individuals who pay their fair share.

"Corporation tax revenues have fallen at a time when securing proper income from taxes is more vital than ever. There is little credible information about what is going on. The evidence we took from large corporations was unconvincing and, in some cases, evasive."

She said the "inescapable conclusion is that multinationals are using structures and exploiting current tax legislation to move offshore profits that are clearly generated from economic activity in the UK".

The PAC report is the result of MPs’ recent grilling of tax officials and executives from Amazon and Google, as well as Starbucks, which have also been accused of tax avoidance.

The MPs accused HMRC of being “way too lenient” with giant global corporations. Its scathing assessment concluded that the taxman is “failing to meet the legitimate public expectations from the tax system” and said the taxman had to be more aggressive and assertive in confronting corporate tax avoidance.

Chancellor George Osborne has pledged more than £150m for HMRC teams that tackle tax avoidance by multinationals, as part of an overall £10bn clampdown.

He said the Government is attempting to coordinate international co-operation to get new anti-avoidance “rules on the table”, and is looking to introduce a general anti-abuse rule to come into force next year.

Mr Osborne claimed that Britain was taking the lead in changing how taxes were paid: “You can’t artificially shift profits around, you can’t hide profits in low tax havens.” Mr Osborne told the BBC that he could “completely understand people’s anger” when they saw overseas companies avoiding taxes in this country.

Starbucks' decision could put pressure on other multinationals, including Amazon and Google, to address their tax policies. The taxman is reviewing Google's tax returns for the past six years, The Times reports.

A leading accountancy firm warned giant firms that a “sea change” in countries’ approach to tax avoidance is on the cards.

KMPG said “corporates are going to have to embrace transparency to explain what taxes they are paying and where they are paying them”.